Sign in to your account

70 Years Of Good, Bad And Ugly

Jawaharlal Nehru, the first prime minister of India. (Keystone Features/GettyImages)

Snapshot

How has India’s tryst with economic destiny worked out in 70 years of Independence? An assessment of what we have achieved and where we have failed.

Most invocations of Jawaharlal Nehru’s famous tryst-with-destiny speech limit themselves to a part of the opening line – “Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge…” and the second sentence – “At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom.”

But what was that tryst? What was that pledge? It was this: “The future beckons to us. Whither do we go and what shall be our endeavour? To bring freedom and opportunity to the common man, to the peasants and workers of India; to fight and end poverty and ignorance and disease; to build up a prosperous, democratic and progressive nation, and to create social, economic and political institutions which will ensure justice and fullness of life to every man and woman.” A few paragraphs earlier, he speaks about how the service of India “means the ending of poverty and ignorance and disease and inequality of opportunity”.

Seventy years on, where does that pledge stand?

On prosperity, there can be no debate – the self-confident India of today with aspirations of becoming an economic superpower does not bear even the faintest resemblance with the India of, forget 1947, even the India of 1987. Any commentary on the 1991 liberalisation invariably refers to an entire generation not knowing, and not being able to even imagine, what it was like to live in pre-1991 India. For that generation, now revelling in being citizens of the world’s seventh largest economy as well as the second fastest growing one, India in the first decade of its Independence would be like another planet altogether.

They would find it hard to fathom that a Rs 121 lakh crore economy started off as a piffling Rs 2.79 lakh crore one. That the average per capita income, now at Rs 93,000, was just Rs 274 in 1950-51. That food shortages were once a defining feature of India, making it endure humiliation twice. The PL-480 saga in the mid-1960s is well known but the late Inder Malhotra, noted journalist, recalled in a newspaper article how even in 1950 India had to send out feelers to the United States and the runaround that the Indian ambassador Vijaylakshmi Pandit was put through before a law authorising food aid was signed. India now exports wheat and rice, the very commodities it once didn’t have enough money to import.

As they zip along six-lane metalled expressways, will this generation believe there was a time when the total road length was only 3.9 lakh kilometres, of which only around 40 per cent (1.57 lakh kilometres) was surfaced? As they chat on their dual-sim mobiles, will they believe that in 1950, only 0.05 out of every 100 persons had a telephone connection? In fact, till 1985, the telephone density was less than 1 per cent.

Source: Economic Survey

The members of the Indian middle class no longer stand in queues to buy their monthly rations and milk or worry about getting sliced bread and matchboxes. They are no longer part of long waiting lists for electricity connections, telephone connections and cars and two-wheelers. In fact, many of them have at least two personal vehicles. Of course, some of the middle-aged and older members, who still have memories of those shortage years, have not been able to shake off the habit of being extra-thrifty.

So India and Indians have a lot more money now, but what about the pledge to end poverty, ignorance and disease? Here, admittedly, the story isn’t so cheery.

The fact that 20 per cent of India’s population is poor is often cited to mock its economic success story. As a standalone fact, the criticism is valid. But this cannot be a standalone fact. It has to be seen along with the level of poverty in the early days – 58 per cent in 1957, increasing to 66 per cent a decade later, as economist Surjit Bhalla shows in a 2016 paper, “Food, Hunger and Nutrition in India”. True, a reduction in percentages need not mean a reduction in the actual number of the poor, which could even have seen an increase. But in India the number of poor has also fallen – from 321 million in 1973-74 to 269 million in 2011-12. Yes, India has not eradicated poverty, but the substantial decrease in the number of the poor isn’t something to be dismissed lightly. Use any of the much-debated estimation methodologies – there may be minor variations in the extent of the reduction, but the substantial reduction cannot be denied.

But has India brought freedom and opportunity to the common man, to the peasants and the workers of India? Hardly. Seventy years after Independence, economic freedom eludes Indians. The political class and the bureaucracy continue to stand in the way of the free operation of markets. Ease of doing business has always been and continues to be more about the organised sector and big business; the informal/unorganised sector continues to be stifled with numerous regulations and inspector raj. Peasants continue to suffer because agriculture – the largest private sector – continues to labour under controls that hark back to the Nehru-Gandhi era.

Source: Economic Survey

Across the political class, there is opposition to reforms in this sector and a refusal to accept the fact that farmers commit suicide because of indebtedness and crop failures are to do with the lack of openness in agricultural markets. The lot of the workers in the unorganised sector, who constitute 98 per cent of the workforce, is pitiable because labour laws privilege workers of the organised sector.

India is still far away from banishing ignorance and disease (in the broader sense of ill-health, since scourges like smallpox, cholera, polio have been eliminated).

We may boast about the strides we have made in innovation, but our crucial education indicators are a disgrace. Literacy rates may have gone up from 18.3 per cent in 1950, but 69.3 per cent is not something a middle income country should be boasting about. True, barring some pockets, physical access is not much of a problem – 93 per cent of households have a primary school at less than 1 kilometre distance, 83 per cent have an upper primary school and 58 per cent have a secondary school. Schools may be ticking all the check boxes of infrastructure and facilities and number of teachers per pupil. Enrolment in elementary education may be near-universal now against 32 per cent in 1950. Gender and caste differences may be narrowing. But all this is rendered meaningless with less than 50 per cent children in Class V being able to read a Class II level text and only 26 per cent of Class V children being able to do simple division. Schools, colleges and universities are churning out students who are unemployable.

We boast about India being a medical tourism destination and about exporting medical services, but our health indicators are quite unhealthy. For every 1,000 live births, 41 children die at birth and 50 die before the age of five. For every one lakh live births, 174 mothers die during delivery. Thirty-five per cent children below the age of five are underweight, 58 per cent are anaemic. Fifty-three per cent women and 22 per cent men are anaemic. Communicable diseases account for 37 per cent of deaths.

Source: Economic Survey

This is not a foundation on which an economic superpower can be built. Health and education are the basic building blocks of a thriving economy.

Even the economic prosperity India now exults in could have come much earlier. In 1950, the share of India and China in the world economy was around 4 per cent each. China’s share is now 17 per cent and India’s 7 per cent. In 1950, the difference between the size of the Chinese and Indian economies was not huge – China’s was $240 billion and India’s $220 billion. Today the Chinese economy is five times the size of India’s.

Clearly India got some things wrong in the early years itself, as a result of which it lost a lot of time.

Nehru is often depicted as either the hero or the villain of the piece. He was a bit of both.

There’s no getting away from the fact that his ideological leanings and some of his leftist advisers were responsible for India going down the socialist path post-Independence. He didn’t face too much of an opposition till the Congress passed the Avadi Resolution in 1955 committing the country to a socialistic pattern of society.

Those rebelling against this had to leave the party.

In keeping with this line, the Industrial Policy Resolution, 1956, brought in industrial licensing, and the Second Five Year Plan (1956-61) brought in Soviet-style planning with state-led industrialisation and econometric modelling determining allocations to individual sectors.

Source: Economic Survey

The public sector companies were supposed to be the temples of modern India, but they started off with a major handicap, for which Nehru’s foreign policy had a role to play. The non-alignment policy, which merely meant an alignment towards the Soviet bloc, resulted in a lot of Western technical and financial assistance that may have come to India going off somewhere else. India did get foreign aid from the West, but not the kind of help a newly industrialising country needed. The Soviet Union was quick to step in and that is why the majority of public sector heavy engineering, steel and power plants were built with Soviet bloc assistance. The technocrats implementing these projects knew they were not getting the best technology that was available, but there was little they could do.

Under Nehru, the public sector was limited to new state-owned companies in sectors that were crucial for a developing economy – steel, heavy engineering, infrastructure. It would be churlish to deny Nehru credit for creating the base on which India’s industrialisation today rests, despite all his other failings. India’s irrigation story may be wanting, but it would have been quite different if not for the large dams that he was responsible for – Bhakra Nangal, Hirakud, Tungabhadra – never mind what environmental activists may now say.

Did Nehru and his advisers push the public sector idea because they felt the private sector couldn’t rise to the challenge? That old debate will never be settled, but there is no denying that thanks to the soul-killing meddling of the Planning Commission, whatever little private initiative was present didn’t stand much of a chance. Industrialist SL Kirloskar’s memoirs, Cactus and Roses, gives a vivid account of the insecurity that prevailed among businessmen of that time. He writes: “I urged the politicians to let entrepreneurs go ahead with expansion, diversification and starting of new enterprises, free from restrictive controls. But the political uncertainty discouraged new investment just at the time when India badly needed more industrial production.” The planning and public sector folly continued, with the latter soaking up resources badly needed elsewhere. The unimaginative actions of the Planning Commission went on well into the 1980s – it red-flagged the Maruti joint venture with Suzuki as unviable and opposed the modernisation plan of the Durgapur steel plant!

Source: Economic Survey

Did Nehru’s approach involve a privileging of industry over agriculture? There is no doubt that under him, agriculture infrastructure, agricultural extension and research got a big boost. But so did state meddling. The late Sharad Joshi lists the various policies that pushed agriculture into a morass it hasn’t been able to get out of till today – the assault on private property through the first amendment to the Constitution, replacing money lenders with cooperatives which have now turned into dens of corruption, attempts to usher in cooperative farming and artificially depressing agricultural prices.

What India needed was a correction in this anti-markets bias. What it got was a sharpening of this slant by Nehru’s daughter. Indira Gandhi virtually unleashed a war on the private sector. Controls and interference increased manifold and provided myriad avenues for petty and high-level corruption. The pro-labour policies of those times encouraged militant trade unionism. The controls on agriculture increased, and the Green Revolution was the only redeeming aspect of her tenure.

The public sector under Nehru was really about the state setting up new enterprises in select sectors but under Gandhi, it became an all-encompassing behemoth as her government went about nationalising whole sectors, starting with banking in 1969. The first nationalisations had happened in the 1950s when the Imperial Bank was taken over and made the State Bank of India and when the Life Insurance Corporation was created to subsume over 200 private insurance firms. But those nationalisations took place in entirely different circumstances. In the case of the Imperial Bank, there was a need to push banking into semi-urban and rural areas and in the case of life insurance, private companies had a record of cheating their customers, though the need to tap insurance funds for development was an equally compelling reason. Gandhi’s nationalisations were done because they were the socialist things to do. Worse, day-to-day interference by the government in public sector companies meant the end of autonomy and opened the doors for political patronage. Soon the public sector became a byword for inefficiency and sloth.

Did all this make a difference to the common man, the poor in whose name all this was done? Life, for them, continued to be difficult. In 1973-74, the first time poverty numbers were estimated, 55 per cent of the population was poor; in 1977-78, 51 per cent continued to be poor. Nationalising of banks did mean that bank branches opened in remote corners of the country and what is now known as priority sectors started getting some credit, but the fact that financial inclusion has been a major policy focus through the 1990s and 2000s shows that it did not help very much.

Source: Economic Survey

If India is what it is today, it is only because of the decisive turning away from socialism in 1991. Gandhi had initiated some liberalisation in the early 1980s, which were taken forward by her son, but these were too tentative and faltering. They just did not make a difference. It was post 1991 that growth accelerated and brought with it an end to the shortage economy that lasted till well into the 1980s. It also brought in its wake sharper declines in poverty and a narrowing of economic and social inequalities.

While India has got its act together on economic policy (barring agriculture), it has not done so in health and education. Again, the problem goes back to the Nehruvian era and the diversion of scarce resources for industrialisation through the public sector instead of encouraging the private sector with a conducive policy environment and putting the money into the social sectors. It wasn’t just about financial resources. Managerial resources of the government were also tied up in a lot of areas a government should not be in at all, leaving little or no bandwidth to look after crucial social sectors.

Blaming Nehru for this will appear to be bizarre, considering it was he who was responsible for world class institutions like the IITs, IIMs, AIIMS and PGI Chandigarh. India’s higher and professional education story would have been quite different if it had not been for Nehru; that credit cannot be taken away from him. But this came at the cost of primary education, something even Amartya Sen, who can hardly be called a Nehru critic, has pointed out. So have other unabashed admirers of Nehru. Public expenditure as a percentage of Gross Domestic Product (GDP) at the start of the Second Plan was 0.64 per cent; by the end of the Plan period it was 1.48 per cent. Even today it is a little over 4 per cent, against the 6 per cent that is considered ideal and what successive governments keep promising. What’s more, the policy bias focussing on inputs – school buildings, infrastructure, teacher-pupil ratio – rather than outcomes has continued to this day. The Right to Education Act, 2009, which was meant to revolutionise primary education, only institutionalised and furthered this bias.

Health too is labouring under the same problems. The Nehruvian era envisaged a fully state-led health system, but did not provide the resources this required. Even today, public health expenditure is just about 1 per cent of GDP; around 3 per cent is accounted for by private expenditure. The public health system is broken – there are primary health care centres without doctors or necessary facilities, doctors are not willing to serve in rural areas, medicines are not available. Health planners have not been able to wrap their heads around the complexity of the country and design policy that address this.

Prime Minister Narendra Modi keeps talking about a new, resurgent India on the seventy-fifth anniversary of Independence. There’s a lot that has been achieved on the economic front, but a lot that needs fixing. Will 2022 signal a new tryst with destiny?

Five landmark events: The following five episodes determined the course the economy took over the last 70 years.

INDUSTRIAL POLICY RESOLUTION AND SECOND FIVE YEAR PLAN

The Indian economy would not have suffered over 30 years of socialism if not for the Industrial Policy Resolution 1956 and the Second Five Year Plan, 1956-61. The Industrial Policy Resolution made an explicit commitment to establishing a socialistic pattern of society and formalised industrial licensing. The Second Five Year Plan took this forward. Its core objectives were: increasing the national income to raise the standard of living; rapid industrialisation, with special emphasis on basic and heavy industries; huge employment growth; and reducing inequalities. These were sought to be realised through Soviet-style planned development, state-led industrialisation through the public sector and import substitution.

PL-480 AND GREEN REVOLUTION

If India is today known as being self sufficient in food, it is because of the PL-480 food grain imports in the mid-1960s, the humiliation of which proved to be the trigger for the Green Revolution. In the mid-1960s, crippled by two successive years of drought and no foreign exchange to import foodgrains, India approached the United States for help and was assured the supply of cheap American wheat against payment in rupees under the Public Law 480 (PL-480). But Indian criticism of American policy in Vietnam miffed the Lyndon Johnson Administration and each shipment was delayed, forcing India into what came to be known as a ship-to-mouth existence.

Smarting under this, Indira Gandhi sowed the seeds of the Green Revolution. Indian agriculture took a technological leap – there was ample use of high-yielding, hybrid varieties of seeds of wheat and rice, pesticides, fertilisers and improved irrigation techniques. By the mid-1970s, India could stop the PL-480 imports and by the time the programme ended in 1977, India was self sufficient in foodgrains.

NATIONALISATION

The nationalisation of 14 commercial banks in July 1969 through the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance set in motion a wave of nationalisations of whole sectors. This was not the first nationalisation – in 1956, the life insurance sector had been nationalised. After the banks, it was the turn of the general insurance sector and coal mines in 1973 and foreign oil marketing companies (Esso, Burmah Shell and Caltex) between 1974 and 1976. Through the mid-1970s, several private companies were nationalised when they were teetering on the edge. All nationalisations were pitched as a pro-poor or pro-labour move. However, they did nothing to improve the access of the poor to banking or insurance services nor make the companies taken over perform better.

THE WINDS OF CHANGE

If 1956 was the year that India openly set off on the path of socialism, 1991 was the year when it decisively turned away from that path. But while the Industrial Policy Resolution and the Second Five Year Plan were driven by conviction, the economic liberalisation of 1991 was driven by compulsion. The country was staring at an economic abyss in 1990. Liberalisation alone could pull it back from there. The control mechanisms were systematically dismantled by P V Narasimha Rao and his finance minister Manmohan Singh. Rao’s successors followed his path in varying degrees.

WTO ACCESSION

The emphasis on self-reliance from the late 1950s, as well as scarcity of foreign exchange, saw India erecting high protectionist walls around its economy. This affected the competitiveness of Indian industry and, as a result, exports also suffered. The economy became very insular and the lack of competitiveness affected the quality of goods in the domestic market as well. India played a key role in the Uruguay Round that led to the formation of the World Trade Organisation (WTO) in 1994, and became a member in the face of strong domestic opposition. Dire warnings of disaster have proved unfounded.

The Indian economy is now more closely integrated with the world economy and it has not suffered as a result. In 1994-95, India’s share in total world exports of goods and services was a piffling 0.61 per cent; it is now 2 per cent. Its share in total world imports of goods and services was 0.78 per cent in 1995; it is now 2.3 per cent.